Editors Note: Executive Vice President
and Chief Operating Officer of the University of Virginia
Leonard Sandridge delivered these remarks to the Law School’s
Business Advisory Council at a reception and dinner in the
Dome Room of the Rotunda on September 11, 2003.

The Dean has been kind enough to ask me to
share with you something that I think he and I both agree is
good for the University of Virginia in the broadest sense, as
well as good for the Law School. It has to do with the concept
we have come to know as Financial Self-Sufficiency.

I think we started on this trek as long
as 20 years ago. I remember being asked to go to the Law School
in the mid- to late-’70s,
when we just had an accreditation visit. At the conclusion of
that accreditation visit we had an exit interview. Those who
had examined the Law School and its performance made the comment
that there were some things that were lacking for this Law School
in the way of financial investment. The second part of the statement,
though, is the thing that really gave us some direction about
Virginia. Their comment was, “Shame on you — you’re
giving your product away. If you charged an appropriate tuition,
you would have the resources necessary to support this institution.”

Beginning then we started to gradually
restructure the pricing policy of the Law School, and that
has accelerated in the past five to seven years to the point
where we’ve achieved a
situation that I describe as Financial Self-Sufficiency.

Let me be sure that I say at the beginning
that none of us can imagine the University of Virginia without
this Law School — and
I hope you would agree that none of us could imagine the Law
School without the University of Virginia. We are not talking
about going private or doing anything of that nature at all.

But in 1995 our Board of Visitors agreed to work toward a concept
that would allow us to build on our strengths at this University,
specifically the Law School and the Darden School, where we have
the capacity both from a private fund-raising perspective as
well as an ability to charge market rates for tuition, to try
to develop a model that will be good for the schools and good
for the University of Virginia.

LET ME BE SURE THAT I SAY … that
none of us can imagine the University of Virginia without
this Law School.

Perhaps a better place to start is to
get to the midpoint and explain Financial Self- Sufficiency
as we know it today (and I should report to you that the Law
School has achieved Financial Self-Sufficiency in the fiscal
year that we are in right now).What it means is that the Law
School and Darden School benefit from 100 percent of the tuition
they raise, they benefit from all the gifts they receive (as
you’d expect, that’s true
of all the schools), they benefit from their application fees,
from their library fines, and from their endowment income. In
return for getting all that revenue, they then are expected to
pay their operating costs to a degree that other schools do not.
They not only pay their direct costs for instruction and teaching,
they also pay for the maintenance and operations of their facilities,
and for capital costs associated with their buildings. In addition
to that, and this became a key, I should be honest and say it
was also a point of great discussion (do not ever think your
Dean and his predecessors cannot negotiate well), we established
a “tax” as the Dean calls it — an indirect
cost as I would describe it — of ten percent of the tuition
revenues, which the Law School contributes to the University
for the services it receives from the central administration.
That is an indirect cost rate that is well below what we accountants
could demonstrate ought to be charged, but is well above anything
we ask our other schools to pay. And so that ten percent of tuition
revenues then goes back to the institution and gets plowed back
into those schools, particularly Arts & Sciences, which frankly
are not capable of charging market rates in the same way the
Law School has done.

WHAT DOES THE LAW SCHOOL get
out of [Financial Self- Sufficiency]? Well, the Law School
has the ability to predict in its planning what its resources
will be in the long term.

The Law School sets its tuition by benchmarking
against a peer group of the top law schools in the nation.
We have agreed that we ought to set our out-of-state tuition
at close to what the private law schools charge. We have worked
with our Board over the last several years to reach an agreement
on something that was a little bit more difficult than one
might originally have expected, and that is that we have set
a $5,000 differential between in-state and out-of- state tuition — a
differential that is substantially smaller than what we started
with, but with a price that is lower than the Darden School.
[Editor’s
Note: Tuition will be set at the $5,000 differential for
first-year in-state students in fall 2004, and to the remaining
classes over the next three years. This differential is subject
to approval by the Board of Visitors.] Because we are a state
institution we believe it is appropriate for the sons and daughters
and citizens of Virginia who pay taxes to get a lower tuition
than out-of-state students. We are essentially imposing that
on the Law School, and the University, through central resources,
pays half of that $5,000 differential. What that comes down to
in simple words, is that for every in-state student the Law School
admits, the institution pays an “application” rate
of $2,500 [from the state’s General Fund appropriation.].

What does the Law School get out of that?
Well, the Law School has the ability to predict in its planning
what its resources will be in the long term. It can influence
dramatically how much revenue it will generate by the way it
structures its pricing plans. It is able to recommend its tuition
and salary increases. By law, setting tuition is reserved by
the Board of Visitors, but I can tell you that when the Law
School makes a recommendation I would be greatly disappointed
in our own ability to deliver if we didn’t grant what
was proposed. With one exception in 20 years, and that was
a very unique circumstance, the Board has always granted to
the Law School what it recommended.

What does the University get out of this?
Well, we have been able to succeed in building on the strengths
of our professional schools — Law and Darden. Additionally,
we have freed up institutional resources to invest in the College,
Nursing, Education, and Architecture, which by any standard
do not have the resources or the ability to generate them that
the Law School and Darden School can and do. But we also have
been able to invest $2 million each year into Arts and Sciences
as a result of this agreement with Law and Darden. That is
important for a reason.

When we started to do this there were
expectations that two bad things would happen: the first is
that the Law School would not be considerate in its tuition-setting
policies and tuition would go sky high. A few people also had
a fear that the entire faculty would be paid at extreme rates.
But what those people failed to recognize is that when you
put the responsibility for the revenue side as well as the
expenditure side on a good manager, the incentives are built
in for them to run the Law School just like you run your businesses — and that is that you have
to do what makes good business sense. And so we didn’t
have any of those bad things happen.

Another fear was that the schools that
are sometimes referred to as the “have-nots,” and I don’t like to
hear that term but you will hear it when you’re on Grounds,
would be upset that the Law School could have higher salaries
and resources and could buy and build buildings. That hasn’t
happened. Why? Because they know for a fact that because of the
success of the Law School there is $2 million a year that’s
going back to their budget that simply wouldn’t exist without
this program. So in the long and short of it — all we have
done is to simply align our incentives so the Law School and
Darden School want the same things the University wants.

It is working well. We had planned to
draw this transition out over four or five years before really
reaching Financial Self-Sufficiency. The state saw fit to accelerate
that by taking away state dollars to the point that we found
ourselves having already achieved Financial Self-Sufficiency — through
no fault of our own. So we chose to declare a victory this
year and to sign the agreements with Law and Darden and since
that time they have become financially self-sufficient.

Let me also say a little bit about your
University because we are all part of the same organization.
In spite of the fact that you hear a lot about state funds
being cut dramatically — and
they have been cut dramatically — your institution is doing
very, very well. To put that in perspective, two years ago our
state appropriation was $173 million in tax monies from the Commonwealth.
This year it’s $114 million. In 1980 to 1989, just 12 or
13 years ago, 28 percent of our operating budget came from the
state. This year, 8.1 percent comes from the state and that’s
on a budget of $1.6 billion in operations. For the first time
this year, the budget for the institution as a whole includes
a larger amount from endowment income and private gifts than
it does from state tax dollars.

In our view, that suggests that there
are several things this institution needs to focus on. The
first is that we have to acknowledge to ourselves that much
like the Law School and the Darden School, we’re going to have to, as an institution, become much
more dependent on tuition, and to recognize that as long as we
can provide the appropriate financial aid to our students, we
have to charge a reasonable tuition. We also have to admit to
ourselves that for the future we will have to be second-to-none
in our abilities to raise private monies. That is hard work but
it is a task that this institution under the president’s
leadership has demonstrated it can do quite well. We have to
acknowledge to ourselves that when you have a situation where
the amount of support from the Commonwealth is at the level it
is today, then it is time to forge a new relationship with the
Commonwealth of Virginia. Again, not to separate from the Commonwealth,
not to become a private institution, but to suggest to the state
that there are efficiencies that they can realize as well by
allowing us to assume more responsibility for the governance
of the operation of this institution.

I can report to you that the state has
been very receptive to that. And in part they have been influenced
by what they perceive as the success of the Darden School and
the Law School and the work that we are describing to you here
this evening. One of the big things that the state has always
been concerned about is if we give you permission to raise
tuition, what happens to those with financial need? And I often
cite what the Law School has done in this regard by having
a Loan Forgiveness Program for students who are expected to
pay market rates for tuition. If they choose to go into careers
of public service, loans are forgiven to those students so
they have the opportunity to engage in public service if they
choose to do so. That kind of responsible action on the part
of the management of the Law School has served to help us as
we have gone back to the state and talked about our relationship.
I can tell you that this week we met with several of our key
legislators and quite frankly we have been quite pleased with
their reactions to our proposals and what we are saying to
the state — that a form of self-sufficiency ought to
apply to the entire institution.

Let me take this opportunity to thank
you for the kind of commitment that you and so many of your
colleagues around the country do make, not only to the Law
School, but to the University of Virginia, as successful as
it is. Your institution is doing well. We have an extraordinary
Board of Visitors today. Gordon Rainey ’68,
one of your own, is the Rector, [and I think he spends much more
of his life in Charlottesville than he does in Richmond]. His
leadership has been tremendous. We have excellent students — not
only at the Law School, as you well know, but the undergraduate
students who enter today are extremely impressive. And in the
midst of the budget reductions, and I recognize what I am about
to say is important only to an old financial officer, Standard & Poor’s
came to us and upgraded our bond rating to a AAA and made us
the second of any public university in the United States to have
a AAA bond rating with S&P and Moody’s. Ironically,
one of the reasons cited for the upgrade was that we are now
in a place where we are less subject to the whims of the Commonwealth
of Virginia.

I will tell you that what we have been able to work out for
the Law School and the University as far as Financial Self-Sufficiency
is good for all of us. I hope that three to five years from now
we can come back and look at the success of it. I am honored
to have been invited to have been with you and to visit with
some of my old friends, and forever grateful for you and your
support of the Law School.

Executive Vice President and Chief
Operating Officer of the University of Virginia, Sandridge
assumed this title in November 1999. He has served since
1990 in that role, with similar titles, as a member of President
John T. Casteen III’s senior cabinet. He oversees
operations of all non-academic support areas at the University,
including athletics, student affairs, information technology
and communication, management and budget, finance, UVIMCO,
police, and compliance. In 1999, he assumed responsibility
for the financial and managerial oversight of the Health System.